The former head of the European Central Bank has warned that the radical
action taken by western central banks should not hide the fact that the
global economy has yet to emerge from a multi-year crisis.

Former European Central Bank head Jean Claude Trichet is pictured at a Federal Reserve Board-International Journal of Central Banking conference this weekend.Photo: Reuters

No one should think that "because of the forthcomingness (of central banks), there is no crisis," Jean Claude Trichet told a conference in Washington on Saturday. That should be a "collective, collegial message from the central banks."

"No one would have expected that such a long time after Lehman we would still have the scale of expansion in our balance sheets."

However, the French banker who stepped down after eight years at the helm of the ECB in October, said that the move by his Italian successor, Mario Draghi to offer European banks cheap, three-year loans was "fully justified."

Mr Draghi began offering the loans in December amid fears that one of the Continent's financial institutions would collapse as their sources of private funding dried up. "What has happened recently in Europe is, of course, very substantial," said Mr Trichet. "The move that has been taken is in my opinion fully justified. We had to cope with a very, very grave and immediate threat."

In a wide-ranging speech, Mr Trichet said that the global economy has been going through a major structural adaptation for the last four decades.

"To me, we are still in a crisis," Mr Trichet said. "It is not just the privilege of Europe to still be in a crisis." Starting 35 years ago with Latin America and Asia, the global economy remains in period of structural adaptation, he aid, with major western economies currently the focus.

As crises erupted in Latin America and Asia during the 1980s and 1990s, the consensus in the west was "it went without saying that the advanced economies were protected by a sanctuary of being industralised first," said Mr Trichet, who led France's central bank before moving to the ECB.

Mr Trichet also posited that a mix of globalisation and the instant transmission of information to investors made possible by the internet may have made a permanent change to the financial system. Without defining it, Mr Trichet suggested it may present a new "tail risk" to policymakers.

"That is something to do with behavioural contagion that is not captured by traditional modelling."

In a visit to Harvard University earlier this week, Mr Trichet insisted that "I don't regret anything " about the ECB's policy while he was leading it during the crisis. The ECB was widely criticised for raising interest rates last April. The increase has since been reversed.